account important

7/28/2019 Account Important

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SOME IMPORTANT CONCEPTS

By Pradeep kumar

MBA1.Amortization: the process of writing of intangible assets is term as amortization.2.Branches of accounting

a. financial accounting.b. management accounting.c. cost accounting.3.I.P.O . Initial Public Offer4.Definition of accounting:the art of recording, classifying and summarizing in a significant manner and interms of money, transactions and events which are, in part at least of a financialcharacter and interpreting the results there of.

5.Book keeping:It is mainly concerned with recording of financial data relating to the business

operations in a significant and orderly manner.6. Concepts of accounting:

A. separate entity concept B. going concern conceptC. money measurement concept D. cost conceptE. dual aspect concept F. accounting period conceptG. periodic matching of costs and revenue concept H. realization concept.7. Conventions of accountingA. conservatismB. full disclosureC. consistencyD. materiality.8. Principles of accountinga. personal a/c : debit the receiverCredit the giverb. real a/c : debit what comes in

Credit what goes outc. nominal a/c : debit all expenses and lossesCredit all gains and incomes

9. Meaning of journal: journal means chronological record of transactions.10. Meaning of ledger: ledger is a set of accounts. It contains all accounts ofthe business enterprise whether real,nominal, personal.11. Posting: it means transferring the debit and credit items from the journal to their respective accounts in theledger.12. Trial balance: trial balance is a statement containing the various ledger balances on a particular date.

13. Credit note: the customer when returns the goods get credit for the value ofthe goods returned. A credit note issent to him intimating that his a/c has been credited with the value of the goods returned.14. Debit note: when the goods are returned to the supplier, a debit note is sent to him indicating that his a/c has beendebited with the amount mentioned in the debit note.15. Contra entry: which accounting entry is recorded on both the debit and credit side of the cash book is known asthe contra entry.


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16. Petty cash book: petty cash is maintained by business to record petty cash expenses of the business, such aspostage, cartage, stationery, etc.17. Promissory note: an instrument in writing containing an unconditional undertaking signed by the maker, to paycertain sum of money only to or to the order of a certain person or to the barerof the instrument.


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18. Cheque: a bill of exchange drawn on a specified banker and payable on demand.19. Systems of book keeping:A. single entry systemB. double entry system20. Bank reconciliation statement: it is a statement reconciling the balance asshown by the bank pass book and thebalance as shown by the Cash Book.Objective: to know the difference & pass necessary correcting, adjusting entriesin the books.

21. Matching concept: matching means requires proper matching of expense with the revenue.22. Capital income: the term capital income means an income which does not growout of or pertain to the running ofthe business proper.23. Revenue income: the income which arises out of and in the course of the regular business transactions of aconcern.24. Capital expenditure: it means an expenditure which has been incurred for thepurpose of obtaining a long termadvantage for the business.25. Revenue expenditure: an expenditure that incurred in the course of regular b

usiness transactions of a concern.26. Differed revenue expenditure: an expenditure which is incurred during an accounting period but is applicablefurther periods also. Eg: heavy advertisement.27. Bad debts: bad debts denote the amount lost from debtors to whom the goods were sold on credit.28. Depreciation: depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear,technology changes, laps of time and accident.29. Fictitious assets: These are assets not represented by tangible possession or property. Examples of preliminaryexpenses, discount on issue of shares, debit balance in the profit and loss account when shown on the assets side in the

balance sheet.30.Intangible Assets : Intangible assets means the assets which is not having the physical appearance & its have thereal value, it shown on the assets side of the balance sheet.

31. Accrued Income : Accrued income means income which has been earned by the business during theaccounting/current year but which has not yet been due and, therefore has not been received.32. Out standing Income : Outstanding Income means income which has become due during the accounting year butwhich has not so far been received by the firm.33. Suspense account: the suspense account is an account to which the difference

in the trial balance has been puttemporarily.34. Depletion: it implies removal of an available but not replaceable source, Such as extracting coal from a coal mine.35. All administration expenses are shown in profit & loss account.(debit balance)36. Dilapidations: the term dilapidations to damage done to a building or otherproperty during tenancy.37. Capital employed: The term capital employed means sum of total long term funds employed in the business. i.e.


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(share capital+ reserves & surplus +long term loans (non business assets + fictitious assets)38. Equity shares: Those shares which are not having pref. rights are called equity shares & real owners of the firmaswellas possess voting right.


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39. Pref.shares:Those shares which are carrying the pref.rights is called pref. shares1Pref.rights in respect of fixed dividend.2Pref.right to repayment of capital in the even of company winding up.40. Leverage: It is a force applied at a particular point to get the desired result.41.Operating leverage:The operating leverage takes place when a changes in revenue greaterchanges in EBIT.

42. Financial leverage : It is nothing but a process of using debt capital to increase the rate ofreturn on equity43. Combine leverage: It is used to measure of the total risk of the firm = operating risk +financial risk.44. Joint venture: A joint venture is an association of two or more the personswho combinedfor the execution of a specific transaction & divide the profit or loss their ofan agreed ratio.45. Partnership: partnership is the relation b/w the persons who have agreed toshare theprofits of business carried on by all or any of them acting for all.

46. Factoring: It is an arrangement under which a firm (called borrower) receives advancesagainst its receivables, from a financial institutions (called factor)47. Capital reserve: The reserve which transferred from the capital gains is called capitalreserve.48. General reserve: the reserve which is transferred from normal profits of thefirm is calledgeneral reserve.49. Free Cash: The cash not for any specific purpose free from any encumbrance like surpluscash.50. Minority Interest: minority interest refers to the equity of the minority sh

areholders in aSubsidiary company.51. Capital receipts: capital receipts may be defined as non-recurring receipts from the owner of the business or lenderof the money crating a liability to either of them.52. Revenue receipts: Revenue receipts may defined as A recurring receipts against sale of goods in the normal course ofbusiness and which generally the result of the trading activities.COMPANY TERMINOLOGIES

53. Meaning of Company: A company is an association of many persons who contribute money or moneys worth tocommon stock and employs it for a common purpose. The common stock so contribute

d is denoted in money and is thecapital of the company.54. Types of a company:1.Statutory companies2.government company3.foreign company4.Registered companies:a. Companies limited by sharesb. Companies limited by guaranteec. Unlimited companies


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D. private companyE. public company


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55. Private company: A private co. is which by its AOA:1Restricts the right of the members to transfer of shares2Limits the no. of members 50.3Prohibits any Invitation to the public to subscribe for its shares or debentures.56. Public company: A company, the articles of association of which does not contain the requisite restrictions to make ita private limited company, is called a public company..57. Characteristics of a company:1Voluntary association2Separate legal entity3Free transfer of shares4Limited liability5Common seal6Perpetual existence.58. Formation of company:1Promotion2Incorporation3Commencement of business59. Equity share capital: The total sum of equity shares is called equity sharecapital.60. Authorized share capital: it is the maximum amount of the share capital which a company can raise for the time

being.61. Issued capital: It is that part of the authorized capital which has been allotted to the public for subscriptions.62. Subscribed capital: it is the part of the issued capital which has been allotted to the public63. Called up capital: It has been portion of the subscribed capital which has been called up by the company.64. Paid up capital: It is the portion of the called up capital against which payment has been received.65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt due by it to its holder.66. Cash profit: cash profit is the profit it is occurred from the cash sales.67. Deemed public Ltd. Company: A private company is a subsidiary company to pub

lic company it satisfies thefollowing terms/conditions Sec 3(1)3:1.having minimum share capital 5 lakhs2.accepting investments from the public3.no restriction of the transferable of shares4.No restriction of no. of members.5.accepting deposits from the investors

68. Secret reserves: secret reserves are reserves the existence of which does not appear on the face of balance sheet. Insuch a situation, net assets position of the business is stronger than that disclosed by the balance sheet.These reserves are crated by:

1.Excessive depreciation of an asset, excessive over-valuation of a liability.2.Complete elimination of an asset, or under valuation of an asset.

69. Provision: provision usually means any amount written off or retained by wayof providing depreciation, renewals ordiminutions in the value of assets or retained by way of providing for any knownliability of which the amount can not bedetermined with substantial accuracy.70. Reserve: The provision in excess of the amount considered necessary for the


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purpose it was originally made is alsoconsidered as reserve1Provision is charge against profits while reserves is an appropriation of profits2Creation of reserve increase proprietors fund while creation of provisions decreases his funds in the business.


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71. Reserve fund: These funds are maintained for future investment/requirementsetc.,72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c or group ofaccounts so that the existence of the reserve is not known such reserve is called an undisclosed reserve.Financial Management terms,

73. Financial management: It deals with procurement of funds and their effectiveutilization in business.74. Objectives of financial management: Financial management having two objectives that Is:1. Profit maximization: the finance manager has to make his decisions in a manner so that the profits of the concern aremaximized.2. Wealth maximization: wealth maximization means the objective of a firm shouldbe to maximize its value or wealth, orvalue of a firm is represented by the market price of its common stock.75. Functions of financial manager:1Investment decision2Dividend decision3Finance decision4Cash management decisions

5Performance evaluation6Market impact analysis76. Time value of money: It means that worth of a rupee received today is different from the worth of a rupee to bereceived in future.77. Capital structure: it refers to the mix of sources from where the long-termfunds required in a business may beraised; in other words, it refers to the proportion of debt, preference capitaland equity capital.78. Optimum capital structure: capital structure is optimum when the firm has acombination of equity and debt so thatthe wealth of the firm is maximum.79. WACC: It denotes weighted average cost of capital. It is defined as the over

all cost of capital computed by referenceto the proportion of each component of capital as weights.80. Financial break even point: It denotes the level at which a firms EBIT is just sufficient to cover interest andpreference dividend.81. Capital budgeting: It involves the process of decision making with regard toinvestment in fixed assets. Or decisionmaking with regard to investment of money in long term projects.82. Pay back period: Payback period represents the time period required for complete recovery of the initial investmentin the project.83. ARR: Accounting or average rate of return means the average annual yield onthe project.

84. NPV: the net present value of an investment proposal is defined as the sum of the present values of all future cash inflows less the sum of the present values of all cash out flows associated with the proposal.85. Profitability index: where different investment proposal each involving different initial investments and cash inflowsare to be compared.86. IRR: internal rate of return is the rate at which the sum total of discounted cash inflows equals the discounted cashout flow.


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87. Treasury management: it means it is defined as the efficient management of liquidity and financial risk in business.88. Concentration banking: it means identify locations or places where customersare placed and open a local bank a/c in


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each of these locations and open local collection centre.

89. Marketable securities: surplus cash can be invested in short term instruments in order to earn interest.90. Ageing schedule: in a ageing schedule the receivables are classified according to their age.91. Maximum permissible bank finance (MPBF): it is the maximum amount that bankscan lend a borrower towards hisworking capital requirements.92. Commercial paper: It is a short term promissory note issued by a company, negotiable by endorsement and delivery, issued at adiscount on face value as may be determined by the issuing company.93. Bridge finance: It refers to the loans taken by the company normally from acommercial banks for a short period,pending disbursement of loans sanctioned by the financial institutions.94. Venture capital: It refers to the financing of high risk ventures promoted by new qualified entrepreneurs whorequire funds to give shape to their ideas.95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a package of assets (calledasset pool).96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its views by another

party (lessee) over a specified period97. Trade Credit: It represents credit granted by suppliers of goods, in the normal course of business.98. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to overdraw from hisaccount.99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit against creditgranted by bank.100. Clean overdraft: It refers to an advance by way of overdraft facility, butnot back by any tangible security.101. Share capital: The sum total of the nominal value of the shares of a company is called share capital.

102. Funds flow statement: It is the statement deals with the financial resources for running business activities. Itexplains how the funds obtained and how they used.103. Sources of funds: There are two sources of funds Internal sources and external sources.Internal source: Funds from operations is the only internal sources of funds andsome important points add toit they do not result in the outflow of funds(a)Depreciation on fixed assets (b) Preliminary expenses or goodwill written off, Loss on sale of fixed assets

Deduct the following items as they do not increase the funds : Profit on sale offixed assets, profit on

revaluation of fixed assets

External sources: (a) Funds from long term loans (b) Sale of fixed assets (c) Funds from increase in sharecapital

104. Application of funds: (a) Purchase of fixed assets (b) Payment of dividend(c)Payment of tax liability (d) Payment offixed liability105. ICD (Inter corporate deposits): Companies can borrow funds for a short peri


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od. For example 6 months or less fromanother company which have surplus liquidity. Such deposits made by one companyin another company are called ICD.106. Certificate of deposits: The CD is a document of title similar to a fixed deposit receipt issued by banks there is noprescribed interest rate on such CDs it is based on the prevailing market conditions.107. Public deposits: It is very important source of short term and medium termfinance. The company can accept PD


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from members of the public and shareholders. It has the maturity period of 6 months to 3 years.

108.Euro issues: The euro issues means that the issues is listed on a European stock Exchange. The subscription cancome from any part of the world except India.

109.GDR (Global depository receipts): A depository receipt is basically a negotiable certificate , dominated in us dollarsthat represents a non-US company publicly traded in local currency equity shares.

110. ADR (American depository receipts): Depository receipt issued by a companyin the USA are known as ADRs.Such receipts are to be issued in accordance with the provisions stipulated by the securities Exchange commission (SEC)of USA like SEBI in India.111.Commercial banks: Commercial banks extend foreign currency loans for international operations, just like rupeeloans. The banks also provided overdraft.

112.Development banks: It offers long-term and medium term loans including foreign currency loans

113.International agencies: International agencies like the IFC,IBRD,ADB,IMF etc. provide indirect assistance forobtaining foreign currency.

114. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for professionally or technicallyqualified entrepreneurs and persons possessing relevant experience and skills and entrepreneur traits.115. Unsecured l0ans: It constitutes a significant part of long-term finance available to an enterprise.116. Cash flow statement: It is a statement depicting change in cash position from one period to another.

117.Sources of cash: Internal sources-(a)Depreciation (b)Amortization (c)Loss onsale of fixed assets (d)Gains from saleof fixed assets (e) Creation of reserves External sources-(a)Issue of new shares(b)Raising long term loans (c)Short-termborrowings (d)Sale of fixed assets, investments

118. Application of cash: (a) Purchase of fixed assets (b) Payment of long-termloans (c) Decrease in deferred paymentliabilities (d) Payment of tax, dividend (e) Decrease in unsecured loans and deposits119. Budget: It is a detailed plan of operations for some specific future period. It is an estimate prepared in advance ofthe period to which it applies.

120. Budgetary control: It is the system of management control and accounting inwhich all operations are forecastedand so for as possible planned ahead, and the actual results compared with the forecasted and planned ones.121. Cash budget: It is a summary statement of firms expected cash inflow and outflow over a specified time period.122. Master budget: A summary of budget schedules in capsule form made for the purpose of presenting in one reportthe highlights of the budget forecast.123. Fixed budget: It is a budget which is designed to remain unchanged irrespec


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tive of the level of activity actuallyattained.124.Zero base budgeting: It is a management tool which provides a systematic methodfor evaluating all operations andprogrammes, current of new allows for budget reductions and expansions in a rational manner and allows reallocation ofsource from low to high priority programs.

125. Goodwill: The present value of firms anticipated excess earnings.Cost accounting126. Responsibilities of accounting: It is a system of control by delegating andlocating the responsibilities for costs.127. Profit centre: A centre whose performance is measured in terms of both theexpense incurs and revenue it earns.128. Cost centre: A location, person or item of equipment for which cost may beascertained and used for the purpose ofcost control.


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129. Cost: The amount of expenditure incurred on to a given thing.130. Cost accounting: It is thus concerned with recording, classifying, and summarizing costs for determination of costsof products or services planning, controlling and reducing such costs and furnishing of information management fordecision making.131. Elements of cost: (A) Material (B) Labour (C) Expenses (D) Overheads132. Components of total costs: (A) Prime cost (B) Factory cost (C)Total cost ofproduction (D) Total c0st133. Prime cost: It consists of direct material direct labour and direct expenses. It is also known as basic or first or flatcost.134. Factory cost: It comprises prime cost, in addition factory overheads whichinclude cost of indirect material indirectlabour and indirect expenses incurred in factory. This cost is also known as works cost or production cost ormanufacturing cost.135. Cost of production: In office and administration overheads are added to factory cost, office cost is arrived at.136. Total cost: Selling and distribution overheads are added to total cost of production to get the total cost or cost ofsales.137. Cost unit: A unit of quantity of a product, service or time in relation to

which costs may be ascertained or expressed.138. Methods of costing: (A)Job costing (B)Contract costing (C)Process costing (D)Operation costing (E)Operatingcosting (F)Unit costing (G)Batch costing.139. Techniques of costing: (a) marginal costing (b) direct costing (c)absorption costing (d) uniform costing.140. Standard costing: standard costing is a system under which the cost of theproduct is determined in advance oncertain predetermined standards.141. Marginal costing: it is a technique of costing in which allocation of expenditure to production is restricted to thoseexpenses which arise as a result of production, i.e., materials, labour, directexpenses and variable overheads.

Stock related terms142. Derivative: derivative is product whose value is derived from the value ofone or more basic variables of underlyingasset. 143.Forwards: a forward contract is customized contracts between two entities were settlement takes place on a specific datein the future at todays pre agreed price.

144. Futures: a future contract is an agreement between two parties to buy or sell an asset at a certain time in the futureat a certain price. Future contracts are standardized exchange traded contracts.145. Options: an option gives the holder of the option the right to do some thin

g. The option holder option may exerciseor not.146. Call option: a call option gives the holder the right but not the obligation to buy an asset by a certain date for acertain price.147. Put option: a put option gives the holder the right but not obligation to sell an asset by a certain date for a certainprice.148. Option price: option price is the price which the option buyer pays to theoption seller. It is also referred to as the


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option premium.149. Expiration date: the date which is specified in the option contract is called expiration date.150. European option: it is the option at exercised only on expiration date it self.151. Basis: basis means future price minus spot price.152. Cost of carry: The relation between future prices and spot prices can be summarized in terms of what is known as


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cost of carry.

153. Initial margin: The amount that must be deposited in the margin a/c at thetime of first entered into future contractis known as initial margin.154. Maintenance margin: This is some what lower than initial margin.155. Mark to market: In future market, at the end of the each trading day, the margin a/c is adjusted to reflect theinvestors gains or loss depending upon the futures selling price. This is calledmark to market.156. Baskets : Basket options are options on portfolio of underlying asset.157. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a preagreed formula.158. Impact cost: It is cost it is measure of liquidity of the market. It reflects the costs faced when actually trading inindex.159. Hedging: hedging means minimize the risk.160. Capital market: capital market is the market it deals with the long term investment funds. It consists of two markets1.primary market 2.secondary market.161. Primary market: Those companies which are issuing new shares in this market. It is also called new issue market.

162. Secondary market: Secondary market is the market where shares buying and selling. In India secondary market iscalled stock exchange.163. Arbitrage: It means purchase and sale of securities in different markets inorder to profit from price discrepancies.In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio.164. Meaning of ratio: Ratios are relationships expressed in mathematical termsbetween figures which are connectedwith each other in same manner.165. Activity ratio: it is a measure of the level of activity attained over a period.166. Mutual fund: a mutual fund is a pool of money, collected from investors, an

d is invested according to certaininvestment objectives.167. Characteristics of mutual fund:1Ownership of the MF is in the hands of the of the investors2MF managed by investment professionals3The value of portfolio is updated every day168. Advantage of MF to investors :1Portfolio diversification2Professional management3Reduction in risk4Reduction of transaction casts5Liquidity6Convenience and flexibility

169. Net asset value: the value of one unit of investment is called as the Net Asset Value170. Open-ended fund: open ended funds means investors can buy and sell units offund, at NAV related prices at anytime, directly from the fund this is called open ended fund.For ex: 198 or 209 or 210 units171. Close ended funds: close ended funds means it is open for sale to investorsfor a specific period, after which further


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sales are closed. Any further transaction for buying the units or repurchasing them, happen, in the secondary markets.

172. Dividend option: Investor, who chooses a dividend on their investments, will receive dividends from the MF, as whensuch dividends are declared.173. Growth option: investors who do not require periodic income distributions can be choose the growth option.174. Equity funds: equity funds are those that invest pre-dominantly in equity shares of company.175. Types of equity fund:1Simple equity funds2Primary market funds3Sectoral funds4Index funds176. Sectoral funds: These funds are choosen to invest in one or more chosen sectors of the equity markets.177. Index funds: Fund manager takes a view on companies that are expected to perform well, and invests in thesecompanies178. Debt funds: Debt funds are those that are pre-dominantly invest in debt securities.179. Liquid fund: Debt funds invest only in instruments with maturities less tha

n one year.180. Gilt funds: Gilt funds are invested only in an securities, that are issuedby the GOVT. and therefore does not carryany credit risk.181. Balanced funds: Funds that invest both in debt and equity markets are called balanced funds.182. Sponsor: sponsor is the promoter of the MF and appoints trustees, custodians and the AMC with prior approval ofSEBI.183. Trustee: trustee is responsible to the investors in the MF and appoint theAMC for managing the investmentportfolio.184. AMC: the AMC describes Asset Management Company, it is the business face of

the MF, as it manages all theaffairs of the MF.185. R & T Agents: R&T agents are responsible for the investor servicing functions, as they maintain the records ofinvestors in MF.186. Custodians: Custodians are responsible for the securities held in the mutual funds portfolio.187. scheme take over: If an existing MF scheme is taken over by the another AMC, it is called as scheme take over.189. Meaning of load: load is the factor that is applied to the NAV of a schemeto arrive at the price.190. Market capitalization: market capitalization means number of shares issuedmultiplied with market price per share.

191. Price earning ratio: The ratio between the share price and the post tax earnings of company is called as priceearning ratio.192. Dividend yield: The dividend paid out by the company, is usually a percentage of the face value of a share.193. market risk : it refers to the risk which the investor is exposed to as a result of adverse movements in the interestrates. It also referred to as the interest rate risk.194. Re-investment risk : it the risk which an investor has to face as a resultof a fall in the interest rates at the time of


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reinvesting the interest income flows from the fixed income security.


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195. call risk : It is associated with bonds have an embedded call option in them. This option hives the issuer the right tocall back the bonds prior to maturity.196. Credit risk: Credit risk refers to the probability that a borrower could default on a commitment to repay debt orband loans197. Inflation risk: It reflects the changes in the purchasing power of the cashflows resulting from the fixed incomesecurity.198. Liquid risk: It is also called market risk, it refers to the ease with which bonds could be traded in the market.199. Drawings: Drawings denotes the money withdrawn by the proprietor from the business for his personal use.200. Methods of depreciation:1.Uniform charge methods:a. Fixed installment methodb. Depletion methodc. Machine hour rate method.2. Declining charge methods:a. Diminishing balance methodb. Sum of years digits methodc. Double declining method3. Other methods:

a. Group depreciation methodb. Inventory system of depreciationc. Annuity methodd. Depreciation fund methode. Insurance policy method.201. Accrued Income : Accrued Income means income which has been earned by the business during the accounting yearbut which has not yet become due and, therefore, has not been received.202. Gross profit ratio : it indicates the efficiency of the production/tradingoperations.Formula: Gross profit X100Net sales

203. Net profit ratio: it indicates net margin on salesFormula : Net profit X 100Net sales

204. Return on share holders fund : It indicates measures earning power of equity capital.Formula : profits available for Equity shareholders X 100Average Equity Shareholders Funds

205. Earning per Equity share (EPS) : It shows the amount of earnings attributab

le to each equity share.Formula : profits available for Equity shareholdersNumber of Equity shares

206. Dividend yield ratio: It shows the rate of return to shareholders in the form of dividends based in the market price ofthe shareFormula : Dividend per share X 100Market price per share


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207. Price earning ratio : It a measure for determining the value of a share. May also be used to measure the rate ofreturn expected by investors.


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Formula : Market price of share (MPS) X 100Earning per share (EPS)

208. Current ratio : it measures short-term debt paying ability.Formula : Current AssetsCurrent Liabilities

209. Debt-Equity Ratio : it indicates the percentage of funds being financed through borrowings; a measure of the extentof trading on equity.Formula : Total Long-term DebtShareholders funds

210. Fixed Assets ratio : This ratio explains whether the firm has raised adepuate long-term funds to meet its fixed assetsrequirements.FormulaFixed AssetsLong-term Funds

211 . Quick Ratio : The ratio termed as liquidity ratio. The ratio is ascertainedy comparing the liquid assets to currentliabilities.Formula : Liquid AssetsCurrent Liabilities

212. Stock turnover Ratio : the ratio indicates whether investment in inventoryin efficiently used or not. It, thereforeexplains whether investment in inventory within proper limits or not.Formula : cost of goods soldAverage stock

213. Debtors Turnover Ratio : the ratio the better it is, since it would indicate that debts are being collected morepromptly. The ration helps in cash budgeting since the flow of cash from customers can be worked out on the basis ofsales.Formula : Credit salesAverage Accounts Receivable

214.Creditors Turnover Ratio : it indicates the speed with which the payments for credit purchases are made to the

creditors.

Formula : Credit PurchasesAverage Accounts Payable

215. Working capital turnover ratio : it is also known as Working Capital Leverage Ratio. This ratio indicates whether ornot working capital has been effectively utilized in making sales.Formula : Net Sales


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Working Capital

216.Fixed Assets Turnover ratio : this ratio indicates the extent to which the investments in fixed assets contributestowards sales.

Formula : Net SalesFixed Assets

217 .Pay-out Ratio : This ratio indicates what proportion of earning per share has been used for paying dividend.


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Formula : Dividend per Equity Share X 100Earning per Equity share

218. Overall Profitability Ratio : It is also called as Return on Investment (ROI) or Return on Capital Employed(ROCE) . It indicates the percentage of return on the total capital employed inthe business.Formula : Operating profit X 100Capital employed

The term capital employed has been given different meaningsa.sum total of all assets whether fixed or currentb.sum total of fixed assets,c.sum total of long-term funds employed in the business, i.e.,

share capital +reserves &surplus +long term loans (non business assets + fictitious assets).Operating profit means profit before interest and tax

219 . Fixed Interest Cover ratio : the ratio is very important from the lenders p

oint of view. It indicates whether thebusiness would earn sufficient profits to pay periodically the interest charges.Formula : Income before interest and TaxInterest Charges

220 . Fixed Dividend Cover ratio: This ratio is important for preference shareholders entitled to get dividend at a fixedrate in priority to other shareholders.Formula :Net Profit after Interest and TaxPreference Dividend

221. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of principal amounts alsoon time.Formula : Net profit before interest and taxInterest + Principal payment installment1Tax rate

222. Proprietary ratio: It is a variant of debt-equity ratio . It establishes relationship between the proprietors funds andthe total tangible assets.

Formula : Shareholders fundsTotal tangible assets

223. Difference between joint venture and partner ship :1In joint venture the business is carried on without using a firm name,In the partnership, the business is carried on under a firm name.

2In the joint venture, the business transactions are recorded under cash system


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In the partnership, the business transactions are recorded under mercantile system.

3In the joint venture, profit and loss is ascertained on completion of the ventureIn the partner ship , profit and loss is ascertained at the end of each year.

4In the joint venture, it is confined to a particular operation and it is temporary.In the partnership, it is confined to a particular operation and it is permanent.

224. Meaning of Working capital: The funds available for conducting day to day operations of an enterprise. Alsorepresented by the excess of current assets over current liabilities .225. Concepts of accounting: (in detail)1.Business entity concepts: - According to this concept, the business is treatedas a separate entity distinct from its


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owners and others.

2.Going concern concept :- According to this concept, it is assumed that a business has a reasonable expectation ofcontinuing business at a profit for an indefinite period of time.

3.Money measurement concept :- This concept says that the accounting records only those transactions which can beexpressed in terms of money only.

4.Cost concept :-According to this concept, an asset is recorded in the books atthe price paid to acquire it and thatthis cost is the basis for all subsequent accounting for the asset.

5.Dual aspect concept :- In every transaction, there will be two aspects the receiving aspect and the giving aspect;both are recorded by debiting one accounts and crediting another account. This is called double entry.

6.Accounting period concept :- It means the final accounts must be prepared on aperiodic basis. Normallyaccounting period adopted is one year, more than this period reduces the utilityof accounting data.

7.Realization concept :- According to this concepts, revenue is considered as being earned on the data which it isrealized, i.e., the date when the property in goods passes the buyer and he become legally liable to pay.

8.Materiality concepts :- It is a one of the accounting principle, as per only important information will be taken, andun important information will be ignored in the preparation of the financial statement.

9.Matching concepts :- The cost or expenses of a business of a particular period

are compared with the revenue of theperiod in order to ascertain the net profit and loss.

10.Accrual concept :- The profit arises only when there is an increase in ownerscapital, which is a result of excess ofrevenue over expenses and loss.

226. Financial analysis: The process of interpreting the past, present, and future financial condition of a company.227. Income statement: An accounting statement which shows the level of revenues, expenses and profit occurring for agiven accounting period.228. Annual report : The report issued annually by a company, to its share holde

rs. it containing financial statement like,trading and profit & lose account and balance sheet.229. Bankrupt : A statement in which a firm is unable to meets its obligations and hence, it is assets are surrendered tocourt for administration230 . Lease : Lease is a contract between to parties under the contract, the owner of the asset gives the right to use theasset to the user over an agreed period of the time for a consideration231. Opportunity cost : The cost associated with not doing something.232. Budgeting : The term budgeting is used for preparing budgets and other prod


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ucer for planning,co-ordination,andcontrol of business enterprise.233. Capital : The term capital refers to the total investment of company in money, tangible and intangible assets. It is thetotal wealth of a company.234. Capitalization : It is the sum of the par value of stocks and bonds out standings.235. Over capitalization : When a business is unable to earn fair rate on its outstanding securities.236. Under capitalization : When a business is able to earn fair rate or over rate on it is outstanding securities.237. Capital gearing : The term capital gearing refers to the relationship between equity and long term debt.238. Cost of capital : It means the minimum rate of return expected by its investment.239. Cash dividend : The payment of dividend in cash240. Define the term accrual : Recognition of revenues and costs as they are earned or incurred . it includes recognition oftransaction relating to assets and liabilities as they occur irrespective of theactual receipts or payments.241. Accrued liability : A developing but not yet enforceable claim by an another person which accumulates with thepassage of time or the receipt of service or otherwise. it may rise from the purchase of services which at the date of

accounting have been only partly performed and are not yet billable.242. Convention of Full disclosure: According to this convention, all accountingstatements should be honestly preparedand to that end full disclosure of all significant information will be made.243. Convention of consistency : According to this convention it is essential that accounting practices and methods remainunchanged from one year to another.244. Define the term preliminary expenses : Expenditure relating to the formation of an enterprise. There include legalaccounting and share issue expenses incurred for formation of the enterprise.245. Meaning of Charge : charge means it is a obligation to secure an indebt ness. It may be fixed charge and floatingcharge.

246. Appropriation : It is application of profit towards Reserves and Dividends.247. Convertible Debenture : A debenture which gives the holder a right to conversion wholly or partly in shares inaccordance with term of issues.248. Redeemable Preference Share : The preference share that is repayable eitherafter a fixed (or) determinable period(or) at any time dividend by the management.249. Cumulative preference shares : A class of preference shares entitled to payment of cumulates dividends. Preferenceshares are always deemed to be cumulative unless they are expressly made non-cumulative preference shares.


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250.Debenture redemption reserve : A reserve created for the redemption of debentures at a future date.

251. Cumulative dividend : A dividend payable as cumulative preference shares which it unpaid cumulates as a claimagainst the earnings of a corporate before any distribution is made to the othershareholders.252. Dividend Equalization reserve : A reserve created to maintain the rate of dividend in future years.253. Opening Stock : The term opening stock means goods lying unsold with the businessman in the beginning of theaccounting year. This is shown on the debit side of the trading account.254. Closing Stock : The term Closing Stock includes goods lying unsold with the businessman at the end of theaccounting year. The amount of closing stock is shown on the credit side of thetrading account and as an asset in thebalance sheet.255. Valuation of closing stock : The closing stock is valued on the basis of Cost or Market price whichever is lessprinciple.256. Contingency : A condition (or) situation the ultimate out come of which gain or loss will be known as determinedonly as the occurrence or non occurrence of one or more uncertain future events.

257. Contingent Asset : An asset the existence ownership or value of which may be known or determined only on theoccurrence or non occurrence of one more uncertain future events.258. Contingent liability : An obligation to an existing condition or situationwhich may arise in future depending on theoccurrence of one or more uncertain future events.259. Deficiency: the excess of liabilities over assets of an enterprise at a given date is called deficiency.260. Deficit: The debit balance in the profit and loss a/c is called deficit.261. Surplus: Credit balance in the profit & loss statement after providing forproposed appropriation & dividend ,reserves.

262. Capital redemption reserve : A reserve created on redemption of the averagecost:-the cost of an item at a point oftime as determined by applying an average of the cost of all items of the same nature over a period. When weights arealso applied in the computation it is termed as weight average cost.263. Floating Change : Assume change on some or all assets of an enterprise which are not attached to specific assets andare given as security against debt.264. Difference Between the Funds flow and Income statement :5A funds flow statement deals with the financial resource required for running the business activities. It explainshow were the funds obtained and how were they used,Whereas an income statement discloses the results of the business activities, i.

e., how much has beenearned and how it has been spent.6A funds flow statement matches the funds raised and funds applied during a particuar period. The sourceand application of funds may be of capital as well as of revenue nature.An income statement matches the incomes of a period with the expenditure of thatperiod,which are both of a revenue nature.

265. Difference between Funds flow and Cash flow statement :


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7A Cash flow statement is concerned only with the change in cash position whilea funds flow analysis is concernedwith change in working capital position between two balance sheet dates.8A cash flow statement is merely a record of cash receipts and disbursements.While studying the short-termsolvency of a business one is interested not only in cash balance but also in the assets which are easilyconvertible into cash.

266 . A zero-coupon bond (also called a discount bond or deep discount bond) isa bond bought at a price lower than itsface value, with the face value repaid at the time of maturity.[1] It does not make periodic interest payments, or have so-called "coupons," hence the term zero-coupon bond. Investors earn return from the compounded interest all paid atmaturity plus the difference between the discounted price of the bond and its par (or redemption) value. Examples ofzero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds,[1] and any type ofcoupon bond that has been stripped of its coupons.277. An investment bank is a financial institution that assists corporations andgovernments in raising capital byunderwriting and acting as the agent in the issuance of securities. An investment bank also assists companies involved in

mergers and acquisitions, derivatives, etc. Further it provides ancillary services such as market making and the tradingof derivatives, fixed income instruments, foreign exchange, commodity, and equity securities288. difference between debit card and credit cardATM card is the card which can be used in Automated Teller Machines. If you havemoney in your account, you cantake money using this ATM card from the ATM machine using your personalized PINnumber. It also can be called asdebit card. But remember, you can get money using this card only when you have sufficient balance in your account.


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On the other hand, credit card is a kind of credit you get from the bank as thename suggests. Even if you have nosufficient money in your bank, you can take money or you can buy any article using credit card up to the credit limit.You can pay back the money to the bank after a given period of time.We can use debit card as well as credit card for shopping online or buying any article from the shop. You also can paytelephone bills, current bills and even recharge your prepaid mobiles using these cards online. Many banks give thesefacilities.

299. difference betwen accounting and financeAccounting is basically the system of making records, verifications and reporting of value of assets, liabilities, expensesand income in the accounts books. The transactions are posted chronologically torecord changes in value of assets andliabilities.

On the other hand, Finance refers to the time, money and risk associated with aspecific business. Finance is differentbecause it works on the accounting information to predict future trends or to make decisions about the future.

300. financial instruments of money market301. what is the journal entry for bad debts?Bad Debts A/c Dr

To Debtor/Customer A/c

302. what is the Entry for Prepaid expenses? which side it come in balance sheet?prepaid expense a/c drto particular expense a/c cr

prepaid expense comes on the asset side of balance sheet.

303. indexA stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financialservices firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds.

A national index represents the performance of the stock market of a given nationand by proxy, reflects investorsentiment on the state of its economy.

More than 4000 Companies are listed in BSE or Bombay Stock Exchange

Top 30 companies form together the premier index called SENSEX. In SENSEX different weights are allocated to eachcompany. These companies represent all the major sectors of Indian economy.

NSE Stands for National Stock Exchange. It has more than 2000 stocks from different sectors listed with it. It is fullyautomated electronic order processing exchange. Nifty is major index of NSE andit comprised of 50 scripts from


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different sectors.

The NSE index is calculated using the 50 most profitable and largest companies in India which are listed in the NSE. Thisindex is called Nifty. Some companies listed in it are Reliance Industries, ICICI Bank, Larsen & Toubro, HDFC Bank,Hero honda etc...


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account important

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